Tsunami warnings for West coast of North America after Alaska earthquake. USD gains after govt re-opens. Davos speeches now awaited.
Tuesday 23 January, 2018
Daily Currency UpdateThe USD didn’t actually make a fresh low on Monday. Its index against a basket of major currencies held on to a 90 ‘big figure’ across all three time-zones even before news came of an end to the government shutdown after just 3 days. Overnight in Asia it dipped to 89.98 and after opening in London at exactly 90.00, the index added a couple of tenths to a best level of 90.20 during the European morning. Whilst Senate Democratic leader Chuck Schumer announced that his party would support a short-term spending measure – which funds the government through 8 February - this only kicks the can another 2 ½ weeks down the road and if no agreement can be made on the so-called ‘Dreamers’ immigration program, then the government will shut down again on February 9th. In the meantime, stocks have surged to yet another record high, whilst 10-year Treasury bond yields made a fresh cycle high of 2.66%. How long stocks and bond yields can continue to rise simultaneously is now the big question gripping asset managers and private investors around the world. There is no official economic data scheduled for release in the US today though after the House passed the three-week continuing resolution that was passed by the Senate yesterday evening, it has cleared the way for President Donald Trump to head off to Switzerland for the WEF. The US Dollar index opens in North America this morning at 90.10 with US 10-year bond yields 1bp lower at 2.64%.
Key MoversWith the Bank of Canada meeting finally fading into the rear-view mirror, USD/CAD has eased around half a cent from Friday’s New York close to be back at 1.2455. As we write this commentary, an earthquake with a magnitude of 7.9 on the Richter scale has struck 250km off the coast of Alaska and a tsunami alert has been issued for the entire west coast of Canada and the United States as far south as Los Angeles. Thus far it has had no noticeable impact on the USD/CAD exchange rate but is obviously something to bear in mind when looking at financial markets in North America this morning. We pray for the safety of everyone affected. Prime Minister Justin Trudeau is speaking at the World Economic Forum in Davos today. According to his office, “It will be an opportunity to present our international priorities and to talk about the five themes of the G7 that we’ve already unveiled”. As well as the progress of NAFTA talks and headlines from Davos, currency traders will also be waiting Thursday’s November retail sales data and Friday’s CPI numbers. As for energy prices, WTI is back up to $64.00 per barrel; still below last week’s 3-year high of $64.75 but a dollar up from Friday’s low. The Canadian Dollar opens in North America this morning at USD1.2475 and GBP/CAD1.7405.
Having briefly spiked to a fresh 2018 high of USD1.2303 on Wednesday, some deliberately plain and unsubtle verbal intervention from ECB Council members helped knock the EUR back down to 1.2220 by Friday’s close. Their task feels a little like holding balloon under water, though, and the euro has been back up to USD1.2260 this morning in Europe as traders try to figure out what the US shutdown might mean in the very near-term. The main event of the week ahead is of course Thursday’s ECB Council Meeting. After a totally unexpected shift in language in its summary of the last meeting, the big question is whether President Draghi will attempt to dial back market expectations around an actual shift in interest rate policy. He has form on this: at a meeting in Sintra, Portugal on June 27th last year, he spoke of a strengthening and broadening recovery in the Eurozone but then spent the last 2 months up to the Jackson Hole gathering in late August trying to undo the impact of his words on the euro exchange rate. Ahead of the ECB meeting, we have the German ZEW survey on Tuesday and then the preliminary Eurozone ‘flash’ PMI surveys on Wednesday and the ifo survey on Thursday morning. The EUR opens in North America this morning at USD1.2260 and EUR/CAD1.5280.
The Pound made a whole series of fresh 2018 highs last week, even though incoming economic data was generally soft and there has been no progress at all in Brexit negotiations. Instead, investors have been piling in to a currency which looks fundamentally inexpensive and has plenty of positive momentum. After a quiet session in Asia overnight which saw GBP/USD in a range from 1.3760-90, it moved back on to a 1.38 big figure during the European morning. The week ahead begins very quietly in terms of market-moving economic releases though Prime Minister Theresa May will be at the World Economic Forum in Davos, Switzerland where she is scheduled to meet with US President Donald Trump. A Downing Street spokesman said the bilateral meeting would take place "in the margins" of the forum, though no further details were made public. On Wednesday we get the latest month unemployment and average earnings numbers and on Friday it’s the Q4 GDP numbers where consensus looks for a +0.4% q/q increase compared to the +0.5% rise which the Bank of England appears to have penciled in. The British Pound opens in North America this morning at USD1.3905, CAD1.7330 and AUD1.7350.
Last week, the Australian Dollar hit 80 US cents for the first time since September but stopped just 20 pips short of what would have been its best level in 32 months. Friday’s high was USD0.8035 whilst the high back on September 12th last year was 0.8052. It ended in New York on Friday around 0.7985 but after staying on a 79 cents handle through much of the Asian session, it is back now at 80 US cents at the end of the European morning session. The week ahead kicks off slowly for the AUD then gets even slower with the Australia day holiday on Friday January 26th; the day the commander of the First Fleet, Captain Arthur Phillip, rowed ashore at Sydney Cove, raised the Union Jack and proclaimed British sovereignty over part of the continent in 1788. Whatever the rights and wrongs of an increasingly controversial holiday, it is sure to be celebrated in some style as it conveniently starts a long, warm Summer weekend. There are no top-tier economic data releases locally this week, with nothing at all today then the ANZ Roy Morgan weekly consumer confidence numbers on Tuesday and the Westpac leading index and skilled vacancies numbers on Wednesday. The first RBA meeting of the new year is still more than a fortnight away and the currency is more likely to be moved by news from the US and Davos, Switzerland than by anything at home. The AUD opens in North America this morning at USD0.8010 with AUD/CAD at 0.9985 and AUD/NZD1.0965.
The biggest surprise for the New Zealand Dollar today is how quiet it has been. Of the six major currencies we follow closely here, its position on the one-day performance charts over the past week was first, last, second, first equal and last equal. On Monday, NZD/USD got back on a US 73 cents big figure for the first time since the day after the General Election back in late September and was up over 5 cents from the November 8th low. On Wednesday it hit a best level for 2018 just under USD.7330 and closed in New York on Friday at 0.7275. This morning in Europe it has climbed back on to US 73 cents. The calm locally was explained by a partial holiday in New Zealand. Wellington Anniversary Day is celebrated on the Monday nearest to January 22nd and commemorates the arrival of the first settler ship to New Zealand in 1840. The settlers named the town they founded Wellington, in honour of the first Duke of Wellington, who had been victorious at Waterloo some 25 years earlier. Auckland has its own holiday next Monday, January 29th. After last Friday’s disappointment of the manufacturing PMI survey, Tuesday brings the performance of services index. The main focus of the week, though, will be Thursday’s quarterly CPI numbers which consensus estimates will be around +0.4% q/q and 1.9% y/y. The RBNZ’s published forecast is one-tenth lower on both measures. The New Zealand Dollar opens in North America at USD0.7310 with NZD/CAD at 0.9105.
- USD/CAD: 1.2410 - 1.2510 ▼
- EUR/USD: 1.2180 - 1.2305 ▼
- GBP/USD: 1.3800 - 1.3940 ▼
- AUD/USD: 0.7940 - 0.8035 ▼
- NZD/USD: 0.7260 - 0.7330 ▼